Laws on GST

Recently, the Supreme Court of India (SC), held that Union and State legislatures have equal, simultaneous and unique powers to make laws on Goods and Services Tax (GST) and the recommendations of the GST Council are not binding on them.

Details –

• The apex court’s decision came while confirming a Gujarat High Court ruling that the Centre cannot levy Integrated Goods and Services Tax (IGST) on ocean freight from Indian importers.
• The value of imported goods includes the Cost, Insurance and Freight components and Customs Duty and GST are levied on that value.
• However, the Central Board of Indirect Taxes and Customs proposed levying GST at 5% on the value of imported products, with 10% of the value of imported goods regarded to be ocean freight.
• This meant a 0.5% GST on the value of imported products as services, in addition to Customs duty and GST, which is roughly 28% and charged as goods.

What did the court rule?

• The Union and State legislatures have equal, simultaneous and unique powers to make laws on GST.
  • • Article 246A of the Indian Constitution treats the Union and the States as equal units, conferring a simultaneous power (on Union and States) for enacting laws on GST.
    • Article 279A (constituting the GST Council) envisions that neither the Centre nor the states are actually dependent on the other.
• The recommendations of the GST Council are the product of a collaborative dialogue involving the Union and the states.
  • • They are recommendatory in nature and only have a persuasive value.
    • To regard them as binding would disrupt fiscal federalism.
• The decision also ended the government’s long-running battle with companies to implement its IGST on ocean freight (cost of moving goods internationally to India) on a reverse charge basis.
  • • The importers had complained that the IGST was being levied on them twice on the very same transaction by segregating portions of it.
    • Giving relief to the importers, the court held that since the Indian importer is liable to pay IGST on composite supply, a separate levy on Indian importers for the supply of services by the shipping line would be in violation of the Central GST Act.

Possible impact of the ruling –

• Given that the court has categorically stated that the GST Council recommendations have only persuasive value, this judgement may change the landscape of those provisions under GST which are subject to judicial review.
• This is because the constitutionality of such provisions can be challenged based on GST Council recommendations.
• The judgement will strengthen the spirit of cooperative federalism as it emphasised the importance of cooperative federalism, which is an essential component for the well-being of democracy.

About the GST Council –

• Goods and Services Tax Council is a constitutional body for making recommendations to the Union and State Government on issues related to Goods and Service Tax.
• Article 279A says that President shall by order constitute a Council to be called the Goods and Services Tax Council.
• GST Council which will be a joint forum of the Centre and the States, shall consist of the following members -:
  • • The Union Finance Minister – Chairperson;
    • The Union Minister of State in charge of Revenue or Finance – Member;
    • The Minister in charge of finance or taxation or any other minister nominated by each state government – Members.
• One-half of the total number of members of GSTC form quorum in meetings of GSTC.
• Decision in GSTC are taken by a majority of not less than three-fourth of weighted votes cast.
• Centre has one-third weightage of the total votes cast and all the states taken together have two-third of weightage of the total votes cast.
• It is the key decision-making body that will take all important decisions regarding the GST. The GST Council dictates tax rate, tax exemption, the due date of forms, tax laws, and tax deadlines, keeping in mind special rates and provisions for some states. The predominant responsibility of the GST Council is to ensure to have one uniform tax rate for goods and services across the nation.